Traditional risk models like VaR remain industry staples, but their instability creates client tensions.
When volatility spiked in our example, a portfolio’s risk metric jumped from 2.5% to 5% overnight – forcing advisors into difficult explanations. At RiXtrema, we believe risk management must evolve beyond these reactive approaches.
Revised Key Insights:
Limitations of Traditional Models: Metrics like VaR are inherently unstable and fail under stress.
Robust Modeling: Avoid single-factor dependencies. For multi-asset portfolios (equities, fixed income, commodities), simplistic correlations collapse during crises.
Factor vs. Asset-Specific Risk: Idiosyncratic events (e.g., Tesla news) demand granular factor models—not asset-level correlations.
Behavioral Gaps: Risk tolerance questionnaires often miss shifting client psychology (e.g., post-loss conservatism).
The RiXtrema Solution:
StressTestAI integrates historical crises (2008, COVID-19) to model tail risks traditional models ignore.
Blends risk capacity (quantitative) and risk tolerance (behavioral) for resilient portfolios.
Peter Bernstein Award-winning stress methodology.
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